As in those video games in which, as soon as one monster disintegrates, seven more appear, so it happens with i virus. These change continuously, according to "Chance and Necessity", as Nobel Prize winner Jacques Monod wrote in an eponymous and seminal booklet. It's not that the virus is angry with humanity: most of mutations – which are essentially random – is harmless to us (in the sense that it does not aggravate the danger), but, by changing and more dangerous variants: they spread more easily by air, they replicate more quickly inside our bodies, they sometimes manage to avoid the immune defenses and a contact of even a few seconds in an infected area (or 'air') is enough to be infected . In short, more aggressive and more lethal variants.
We had just said (not only as a hope) in last month's "Hands" that the risks are upwards, but the Delta variant (not to mention Delta+ or Lambda) has come to clip the wings of enthusiasm. The infections are increasing everywhere (in Italy less than the average) and we are still at the starting blocks of the race: the race is between the spread of infections and the spread of vaccinations. Who will win?
In a sense, there is already a victory for vaccines, even if partial. The infections increase but serious cases and deaths do not follow this increase, given that a growing part of the population is vaccinated with at least one dose, and in any case, after 18 months of anti-Covid therapies, we have become better at treating the sick. AND science does not stop. New revolutions are on the horizon: artificial proteins, designed in the laboratory, which create vaccines that can be produced at low cost, effective in minimal doses and which can be kept at room temperature: clinical trials have already begun in Washington State and South Korea . In short, in the end the vaccines will win.
Meanwhile, a fringe benefits of the Delta is that people got scared and runs to get done vaccination. Fear makes headlines, but it also induces, apart from the rush for vaccines, prudent behavior in consumption and mobility. The recovery in the coming months may be scratched, but not for long, given the inexorable increase in vaccinations.
Which countries are most exposed? In Europe there are few countries that resist the Delta (the most virtuous are the countries of theEastern Europe). In the western part, the virus is rampant in the United Kingdom, Spain, Portugal, France, Benelux, Greece… Germany and Italy they record increases, but more modest (for now…) than elsewhere. Also in America infections are increasing rapidly, as in the rest of the world, apart from the China, where there is no acceleration in the (very few) new cases of Covid, but with high and raised levels of social restriction.
The incursions of the Delta variant are recent, and the impacts on the economy are not yet reflected in the data, which stop at the surveys made in early June. But restrictions have already returned in some countries, which will inevitably have effects on economic activity.
In ItalyAs mentioned, new Covid cases are on the rise (bad news), but we won at theEuro 20 (good news). Given that the GDP game is played on confidence and spending, we might hope that good news outweighs bad news. The problem is that theeuphoria from epic football feats it won't last long, while for another month or two we will have to painfully parry the Delta lunges...
Inflation is confirmed on both sides of the Atlantic, especially, as already mentioned, at the level of raw material and, in general, of producer prices. But in America also the dynamics of consumer prices accelerates, both at the total index level and at the level excluding food and energy (core). The Fed she doesn't seem concerned and reiterates, with many good reasons, the temporary nature of these increases.
In Europe we're not at 5 percent of US inflation headline, but in Germany consumer prices record (horror!) a trend of 2,4% (1,8% for the core). In Italy the increases are more contained and are maintained well below the famous 2% which is the goal of central banks (see below). We have said that the recovery could be affected by the Delta. And the Delta it will therefore also be able to lend a hand (so to speak) to control inflation: less demand e less hot prices. You already notice some stabilization warnings, if not falls, at the level of raw material, both oil and non-oil.
I housing prices are in tension around the world, but these increases are more linked to very low interest rates (for some time in Denmark there have even been cases of mortgages with negative rates, i.e. the capital to be repaid decreases more than the installments paid) than to issues of overheating of the whole economy. In some countries (especially in the USA and England) there are also restrictions on supply due to issues of master plans and building rights.
Moving on to interest ratesThe more important question is this: increase, to preserve at price tensions and the financing needs of the public deficits? A premise: it is fascinating to see the changes in the practice and grammar of Central banks. Grim guardians of orthodoxy until a few years ago, now they have left the double-breasted and they've put on trainers and boxer shorts: they bring rates to zero or sub-zero, they spread money from helicopters, they warn against premature relaxation of budgetary policy, they minimize the dangers of inflation… And, all in all, they're right.
Yup, rates will rise “but not immediately” (as Saint Augustine said asking the Lord to make him chaste). In some countries there have already been tentative increases, but even here rates will remain very close to historic lows. AND key rate hikes of the main central banks (the Fed sees them at 2023) will go conserve the improvement of the economyIn short, they will be 'good' increases. Looking to long rates, these did not take inflationary threats for granted, and indeed they got off, looking perhaps more at a slowdown in the recovery (let's go back to the Delta) and at a conviction that is spreading: central banks do not speak with forked tongues.
More interesting are the prospects regarding the Qe. Here too there are intentions and forecasts of gradual cessation of that 'emergency room' of the quantitative expansion of the currency which was "a good and right thing, our duty and a source of salvation" (as the Preface states) in the terrible times of the pandemic. And here too, these gradual cessations they will go passi passu to the improvement of economic activity. But, even if technically “minus Qe” means “tightening”, in practice it will not be a question of a monetary policy that hinders the recovery. Monetary conditions will remain accommodative, and this is especially true for Europe.
On July 22, the meeting of the ECB will focus on the new paradigms of monetary policy, the broad lines of which can already be glimpsed: pulling the oars in the boat on the purchases of securities (next year) and, above all, knock down idol by 2%. Before, 2% was considered a maximum (zero%, said Wim Duisenberg one day, when he was Governor of the Dutch Central Bank, before being the first president of the ECB, is the "paradise of a central bank"). Then, when the dangers of deflation arose, it was said that zero% was no good at all, the target must be 2% or close (from the bottom) to 2%. Today it is said that you have to aim for 2% and that's it: neither below nor above. But Lagarde made it clear (quietly) that if inflation is below 2% and there is a need for a strong expansionary policy, it is not excluded that there could be a Overshooting...
Then, there's the question of moneta digitale (not to be confused with Bitcoin). Many central banks are experimenting with digital currencies (the Chinese one is the most advanced). It is basically aanother arrow in the monetary policy quiver. Individuals will be able to hold bank accounts directly with the Central Bank. Which would be useful if, in cases of crisis, the ECB (or the Fed, or…) were to put money into citizens' accounts, with which further blurring the distinction between monetary policy and fiscal policy (which is good).
Il dollar, in June 2020, in the darkest days of the pandemic, it was 1,12 against euro. Then he gave ground and for a year now he has remained in the 1,17-1,22 range. When the descent began there were those who predicted 1,30 at the end of the year, but that won't happen. The growth differential is in favor of an appreciation of the dollar, but with juicio. The other differential – of long-term real rates, T-Bond/Bund – which exceeded one hundred basis points at the beginning of the year, has now practically zeroed, thus pushing in the opposite direction with respect to the growth differential. The "Delta factor" affects both Europe and America, but the investment opportunities are growing in the Old World, which should favor capital inflows. Putting together negative and positive factors on the exchange we have a framework of relative stability, without particular tears.
Lo yuan it has depreciated somewhat against the dollar, conserving the euro, but it is still appreciating by around 7% compared to a year ago. Here too, it is difficult to imagine large deviations from a close perspective.
I stock markets, they broke a few more records, and, as Bertoldo would have said, what goes up then comes down. The chances of a 'down' are increased, due to the evil Delta. But, confirming what has been said in the past, a correction will be, precisely, just a fix. Fundamentals continue to remain supportive of equity investing, although some good yields can be found in corporate bonds. Varying on refrain passed, this is not a 'shopping advice', but if readers wanted to consider it as such, it would be part of free will.
